Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

Existing-Home Sales Drop For First Time In Over Two Years

Written by Paul Esajian

According to a report released by the National Association of Realtors (NAR), existing-home sales fell in November. This was particularly surprising, as respective sales declined in the face of encouraging price growth. On a national level, November witnessed existing-home sales drop 4.3 percent to a seasonally adjusted annual rate of 4.90 million. The decrease has been attributed to higher mortgage rates, constrained inventories and tight credit regulations.

It is important to note that existing-home sales are represented by completed transactions of the following: single-family homes, townhomes, condominiums and co-ops. Sales involving these types of properties were trending upwards as early as October when they peaked at 5.12 million. The recent decline reported by the NAR represents the first time in 29 months that sales were below year-ago levels.

Lawrence Yun, NAR chief economist, acknowledged that the market is under unusual pressure. “Home sales are hurt by higher mortgage interest rates, constrained inventory and continuing tight credit,” he said. “There is a pent-up demand for both rental and owner-occupied housing as household formation will inevitably burst out, but the bottleneck is in limited housing supply, due to the slow recovery in new home construction. As such, rents are rising at the fastest pace in five years, while annual home prices are rising at the highest rate in eight years.”

Despite a decline in existing-home sales, the national median existing-home price for all housing types increased. As of November, the average price of a home was $196,300, up nearly 10 percent from the previous year’s mark. Distressed properties, on the other hand, accounted for 14 percent of the November sales. That number did not change from October. However, distressed properties made up 22 percent of existing-home sales last year at the same time. A smaller share of distressed sales is contributing to price growth.

With news that the Federal Reserve will finally begin tapering its monthly purchases of Treasuries and mortgage-backed securities, mortgage rates are expected to increase. In the event that rates go up, existing-home sales could experience a similar decline. Analysts familiar with the market expect existing-home sales to drop for at least another month.

The decline in existing-home sales compliments Yun’s recent predictions of a stagnant housing sector. The NAR’s chief economist projected home sales to remain flat heading into the New Year because of affordability issues, limited inventory and tight mortgage lending practices.

Fortunately, the latest decline is nothing to be too worried about. The upcoming year is expected to be a good year for the housing sector, as single-family housing starts recently jumped to their highest level in five years. The 20.8 percent increase from last month is an encouraging sign that the recovery is heading in the right direction. The increase in construction could alleviate an inventory shortage that many analysts say has constrained demand, perhaps boding well for home sales in the long term.

While the number of existing homes for sale at the end of November slipped 0.9 percent to 2.09 million, the amount of time it would take for those homes to clear at the current sales pace increased to 5.1 months, up from 4.9 months in October and 4.8 months a year ago, NAR reported.